We use cookies to customise content for your subscription and for analytics.If you continue to browse Lexology, we will assume that you are happy to receive all our cookies. For further information please read our Cookie Policy.

This past May, alums of a for-profit program run by the now-defunct Corinthian Colleges, Inc. won a stunning, albeit temporary and partial, victory against the Department of Education: the grant of their motion for a temporary restraining order and preliminary injunction by a magistrate judge sitting on the United States District Court for the Northern District of California.

Background

Under former President Barack H. Obama, the DOE adopted a program of blanket forgiveness of federal student loans taken out by Corinthian alums frequently referred to as the “Corinthian Job Placement Rate Rule.” All that the Obama-era DOE required to ensure full cancellation of any outstanding educational debt was the submission of a short and simple form attesting to a borrower’s enrollment in certain specific programs, during specified periods of time and at specified campuses, whose job placement rates had been misrepresented by the company. Pursuant to this Corinthian Job Placement Rate Rule, the DOE granted complete forgiveness to nearly 27,000 former Corinthian students.

In December 2017, the DOE, now led by Elisabeth “Betsy” DeVos, opted to abandon this expansive formula. With little apparent public input, high-level officials crafted a more individualized approach soon known as “the Average Earnings Rule” that resulted in a denial of any relief to those alums whose “average earnings” were not less than half of the “average earnings” of some unspecified group of students who went to a different, non-Corinthian school. In coming up with these numbers, the DOE turned to the Social Security Administration and invoked an information sharing agreement originally intended to measure and publish “gainful employment” metrics for students’ use. So as to assess the earnings from Corinthian programs to “comparable” ones, the DOE thereupon grouped 61,717 former students who applied to have their loans cancelled by 79 Corinthian programs they attended and received these students’ earnings data from the SSA. The SSA, in turn, provided the DOE with the “mean and median incomes” for each program group based on 2014 data. Per the Average Earnings Rule, those borrowers who enrolled in programs for which the average Corinthian applicants’ earnings were more than half of the “comparable” programs were denied complete loan relief by the DOE under DeVos.

This haphazardly disclosed shift, revealed primarily via individual rejection letters rather than any official public release, piqued the interest of newspapers, and the concern of state officials already suspicious of the Trump Administration, soon thereafter.

Lawsuit Launched

With notice spreading, the inevitable came to pass: on December 20, 2017, three plaintiffs—Martin Calvillo Manriquez, Jamal Cornelius, and Rthwan Dobashi, represented by the Project on Predatory Student Lending, a legal services clinic at Harvard Law School, and Housing and Economic Rights Advocates, a California statewide, not-for-profit legal service and advocacy organization—filed a class action complaint for declaratory and injunctive relief aimed at securing the preservation and application of the Corinthian Job Placement Rate Rule. In their exhaustive pleading, the plaintiffs slammed the new policy as arbitrary, capricious, and therefore illegal pursuant to the Administrative Procedures Act (“APA”) for its violations of the Privacy Act. Enacted in 1974, the Privacy Act prohibits one government agency from sharing individuals’ information with other federal agencies, as the SSA and DOE had done prior to the latter’s creation of the Average Earnings Rule, without meeting certain procedural safeguards and being subject to certain expressly defined exceptions.

Summary of Ruling: A Partial and Tentative Victory at Best

On May 25, the Court agreed, granting these borrowers’ motion for a preliminary injunction. In particular, it ordered the DOE to stop both using the Average Earnings Rule immediately and collecting the loans of certain Corinthian borrowers. “When the . . . [DOE] disclosed to the . . . [SSA] information about the applicants’ Social Security numbers and dates of birth from . . . [the former’s] files, that disclosure violated the Privacy Act,” the Court stated in its 38-page ruling. The Court offered up an unambiguous rejoinder to the DOE’s assertion that its use of SSA data was consistent with the relevant agreement: even if true, privacy laws like the Privacy Act still bar the use of aggregate statistical data to make decisions concerning the “rights, benefits or privileges of specific individuals.”

Despite the huzzah that greeted this ruling, however, the Court’s order was, in fact, rather narrow. Even though the Court granted the motion, it did so purely due to the DOE’s failure to follow the procedures set forth in the APA. Indeed, the ruling explicitly acknowledged DOE’s (mostly) untrammeled statutory and administrative “power to determine the amount of relief a borrower can obtain.” No other law, including the Due Process Clause of the Fifth Amendment, bequeathed a protected interest in the application of the more generous Corinthian Job Placement Rate Rule unto a single one of Corinthian’s encumbered graduates. For that reason, if the DOE readopted its rule in accordance with the strictures of the APA, the Court strongly implied, the Average Earnings Rule would likely be safe from invalidation. Naturally enough, a Department spokesperson promptly touted this implicit recognition in an email to The Washington Post.

Compare jurisdictions:Litigation: Enforcement of Foreign Judgments

“As in house counsel for a medium sized NZ group of companies, I find the newsfeeds very useful as they keep me up-to-date with the latest legal info in areas I have subscribed for. The quality is very good and I would not hesitate to recommend to colleagues.”